Is Palantir Stock a Buy Now?

Palantir Technologies (NASDAQ: PLTR) has delivered a major win for investors who scooped up the stock in the early days of the artificial intelligence (AI) boom and held on. The tech giant's shares have climbed 1,200% over the past three years. This is as the company wowed investors with earnings growth quarter after quarter and encouraging comments about ongoing demand.

One problem that Palantir has faced, though, is a soaring valuation. That has kept some investors away -- and has even prompted some shareholders to sell as they worried demand for Palantir stock would slump.

This has weighed on Palantir's performance in recent times, with the stock sliding about 25% since the start of the year. One positive element is the fact that this decline has also brought valuation down. Is Palantir stock a buy now? Let's find out.

Image source: Getty Images.

Palantir's data expertise

First, a quick note on Palantir's business and how the company has become so successful over the past few years. Palantir sells software systems that aggregate a customer's data and help them use it to advance their goals -- this may mean quickly changing tactical moves on the battlefield or reorganizing a restaurant's workflows to optimize efficiency. Palantir's customers include both governments as well as commercial players.

And all of these customers particularly like the company's AI-based platform, simply called Artificial Intelligence Platform (AIP). Palantir launched AIP back in 2023, and this platform has been supercharging growth. Customers appreciate it because it offers them a fast and easy way to apply AI to their needs -- it also saves them money because they don't have to invest in the building blocks of an AI platform.

Strong commercial and government businesses

Palantir has delivered double-digit revenue growth thanks to gains in both its commercial and government businesses, and profit has also climbed. Trends in the commercial business are particularly interesting, as this was a very small part of revenue just a few years ago. Palantir has grown its number of U.S. commercial customers from under 20 about five years ago to more than 500 today. And contract value also has advanced significantly. For example, in the latest quarter, the company closed a record level of U.S. commercial contract value at more than $1.3 billion. That's a 67% increase from a year earlier.

So, things are looking bright for Palantir. But is now a good time to buy? Today, Palantir still remains pricey, but its valuation has dropped quite a bit.

PLTR PE Ratio (Forward) data by YCharts

It's impossible to predict whether Palantir's stock will decline further, pushing valuation to lower levels. But, being that it's impossible to time the market, it's a good idea to focus on the company's long-term prospects. And from that angle, Palantir's story looks very positive -- all of this means growth investors who buy Palantir at today's level may score a win over the years to come.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.